RBC Capital Markets has downgraded Standard Life PLC (LSE:SL.) to ‘sector perform’ from ‘outperform’, citing stretched valuations following a sustained share-price rally.
The broker raised its price target modestly to 885p from 870p, even as it signalled the shares may be due a period of consolidation.
Standard Life’s strong run has been driven largely by investor enthusiasm surrounding its agreement to acquire Aegon UK, a deal RBC said it continues to “like strategically.”
However, RBC cautioned that the Aegon UK transaction has not yet completed, and the full financial benefits are not expected to be realised until 2031.
Analysts at RBC observed that Standard Life shares have re-rated to trade at a higher price-to-earnings multiple than diversified European insurers, despite carrying greater balance-sheet risk.
The group is also considered less diversified by product and geography than many of its European peers, which RBC flagged as a concern at current valuation levels.
The additional dividend yield offered over risk-free UK government bonds has fallen to a multi-year low, with RBC’s new target implying a 6.5% dividend yield and a price-to-earnings multiple of 11 times for the 2027 financial year.
The downgrade reflects a broader shift in RBC’s stance, as the broker becomes more selective across European insurance following a strong rally across the sector.
RBC said it prefers large composite insurers offering greater diversification, with Aviva PLC (LSE:AV.) standing out because its valuation discount to rivals has widened noticeably.
AXA and Allianz were also highlighted as appearing reasonably valued, while property and casualty insurers are expected to report robust first-half profits aided by low natural catastrophe losses outside UK motor insurance.
Rising inflation is expected to support premium growth across the sector, and higher bond yields should continue to improve investment returns for well-positioned insurers.
RBC is more cautious on reinsurers as pricing softens and earnings growth slows, preferring Scor to Swiss Re, which it views as expensive relative to Munich Re.
Among UK-listed specialists, the broker favours Hiscox Ltd (LSE:HSX) over Lancashire Holdings Ltd (AIM:LRE) and Conduit Holdings Ltd (LSE:CRE), while staying cautious on Admiral Group Plc (LSE:ADM) after its strong share-price performance.
UK life insurers are expected to benefit from buoyant capital markets, particularly those with large asset-management operations such as Legal & General Group PLC (LSE:LGEN) and M&G PLC (LSE:MNG), though competition and tighter margins in pension risk-transfer deals remain notable headwinds.